Asset AllocationJanuary 15, 2014

CIC Bullish on Developed Economies

<i>CIC Chief Ding Xuedong has revealed his sovereign wealth fund still believes in the US recovery story. </i>

Reported by Featured Author

(January 15, 2014) — The China Investment Corporation (CIC) will remain heavily invested in developed markets, despite some regulatory difficulties with investing in the US.

Chairman and CEO Ding Xuedong told CNBC his sovereign wealth currently invested more than half of its ¥3.5 trillion ($500 billion) in developed economies, and planned to remain overweight for the foreseeable future.

“This is because we are seeing a strong economic rebound in the US over the past two years and Europe is also in recovery,” he said.

In 2013, CIC President Gao Xiqing told CNBC that the US regulators had “singled out” the CIC “as a different investor”.

During today’s interview, Ding said the CIC does face regulatory constraints in “certain countries, sectors and projects”, but highlighted the UK as being easier to work with, thanks to its open and friendly approach to overseas investors.

This strategy does not preclude further investment in emerging markets, however. Ding also said he saw opportunities in the sector, and planned to raise its investments there over the next year.

“In the long run we are bullish in Asia and other emerging countries,” he added.

Ding also expanded on his diversification plans for the sovereign wealth fund. Historically, the CIC had been heavily invested in energy, but since Xuedong arrived in the CEO and chairman role, he has taken steps to divest from the sector.

In September, the fund converted its bond holdings in Russian potash producer Uralkali into a 12.5% equity stake, becoming the miner’s second largest shareholder. This was Ding’s first major decision as chairman.

This move and others suggest Ding is diversifying the CIC’s portfolio away from the energy sector in favour of agricultural assets. China is already the biggest potash consumer in the world, using more than 10 million tons last year in order to boost crop yields. As China’s population continues to grow, so will its demand for the fertilizer. With a major equity stake in Uralkali, CIC will be able to secure an advantage in future price negotiations.

Speaking to CNBC, Ding said: “Since the global financial crisis, especially in the last two years, the returns from energy investments have not been great. Going forward, we may continue to invest in the sector but we will be extra careful.”

Ding also confirmed that the CIC “might increase our investment in agriculture and food”, adding that real estate and infrastructure looked attractive too.

“I am interested in investment opportunities in infrastructure around the world. In the next five to 10 years, infrastructure investment will be a big theme for both emerging and developed markets. We want to increase our investment to get better returns,” he said.